Suit says Verizon inflated subscribers

Company is accused of ad-price ploy

Plugged In

October 04, 2007|By Bloomberg News

Verizon Communications Inc., the second-largest U.S. phone company, was accused in a lawsuit filed yesterday of setting inflated prices for advertising by exaggerating the number of subscribers to its FiOS fiber-optic cable service.

Verizon overstates subscribers by including prospective customers, not just actual ones, advertiser Digital Art Services said in a complaint in U.S. District Court in Manhattan.

"Verizon's internal documents show, and Verizon has now admitted, that Verizon has a policy of inflating the number of its reported FiOS subscribers," Digital Art said in the complaint.

New York-based Verizon is spending $22.9 billion to build its FiOS network, offering TV service to compete with cable companies including Comcast Corp.

Rabe said Digital Art Services, based in Great River, N.Y., sued only after it was unable to withdraw from an advertising contract.

Digital Art said it obtained Verizon's internal documents in a meeting with Verizon's sales agent, after complaining about poor response to its fiber-optic cable, telephone and Internet advertising.

Verizon and other defendants in the case, including its sales agent, told Digital Art executives that pending customers are included in public subscriber reports, and that it was a reasonable practice because pending customers become active customers within two weeks, according to the complaint.

"Verizon's documents flatly contradict that assertion," Digital Art contends in the complaint. "The number of pending subscribers in a given month is far greater than the number of customers added in the following month."

The fraud suit seeks class action status on behalf of other FiOS advertisers and asks for unspecified damages.

Verizon fell 10 cents, to $45.24, in New York Stock Exchange composite trading.